Space Management and Allocations

Space (square footage) is the universal unit in corporate real estate management. It defines the basis for rental, allocation of costs to different occupant groups, is the primary factor in developing space requirements for different utilizations such as offices, work stations, conference rooms, storage spaces, etc. Most companies develop a set of space standards as a means to design office layouts, allocate space to various functions, and use to forecast space demand over time.

In today’s mobile era, with the use of smart phones, WIFI, and mini-pads, work style has become universally mobile. Typically, most office spaces are unassigned, except those job functions which require on-going office accommodations and complex information technology such as call center employees, administrators, stock traders, etc. Managers usually require private offices in their role as supervisors, but this is rapidly changing as Millenials move into management positions and typically prefer the informality of open plan workstations. With the advent of office hoteling (i.e. unassigned workstations used on a reserved basis) the ratio of headcount to office space has increased significantly, with ratios of 2:1, and even 4:1 employees per workstation is now common.

So what are the various techniques to plan and allocate office space? First, there’s the issue of space definition. BOMA (The Building Owners and Management Association) has developed space definitions which are broadly used in the commercial office industry. BOMA’s original space standard was published in 1996. An update was released in 2010 referred to as “Version B.” The original 1996 version is referred to as version “A.” In both cases the standard defines usable, rentable, and gross space. It also clearly defines common areas, which form the basis for CAM or common area maintenance charges. The new standard includes definitions for storage space such as basement spaces, and also outside spaces such as balconies, etc commonly used in tropical markets.

Most CRE managers and commercial office landlords subscribe to the BOMA standards, which are used in the calculation of rentable space. Space measurement is universal in most US markets with the exception of Manhattan, where it seems as if the rentable space is anything the landlord says it is.

The first step in developing a space plan is to reach agreement on a planning factor usually expressed as square footage per employee. If the organization has a high number of mobile employees, then a ratio of 4:1 or 5:1 (square foot per employee) is used. With an office of primarily stationery employees such as a call center, or trading floor, then the ratio would be 1:1. Other standards would include space for conference rooms, training rooms, storage, etc. A design consultant usually is engaged to translate the space forecast into a space layout.

In terms of chargebacks, most CRE managers allocate space and cost on the basis of employee utilization. Occupancy costs are fully loaded with rent and associated costs and then allocated on a pro rata share to the user organizations. In most cases, the standard ratios cited above are used in the calculation. For example, if the ratio is 2:1, and the company standard is 100 sq. ft per workstation, then the allocation is 50 sq. ft per employee times the number of employees times the fully load occupancy cost per square foot. Occupancy cost will vary by organization depending on whether the rental is net rent versus gross rent. With net rent other occupancy costs will need to be added such as utilities, taxes, insurance, maintenance, and capital amortization. With the new FASB standard, rental will now appear on the balance sheet as both assets and liabilities. For purposes of chargeback, it will be the straight line amortization of rental that goes into the calculation for operating leases, and a separate line item for interest expense relative to financing leases. Chargebacks can be set up in the lease management system, so that monthly allocations are automatically charged to other units within the organization or to separate sub-tenants.

Space management is one of the critical responsibilities of the CRE executive, and having a robust lease management system that ties with the space management module is a key to a successful real estate andfacilities management program.